Drug Makers Battle Plan to Curb Rewards for Doctors

By ROBERT PEAR

Published: December 26, 2002

WASHINGTON, Dec. 25 — Drug companies and doctors are fighting a Bush administration plan to restrict gifts and other rewards that pharmaceutical manufacturers give doctors and insurers to encourage the prescribing of particular drugs.

In October, the Department of Health and Human Services said many gifts and gratuities were suspect because they looked like illegal kickbacks. Since then, a few consumer groups, including AARP, have voiced support for the restrictions. But they are outnumbered by the drug makers, doctors and health maintenance organizations that have flooded the government with letters criticizing the proposal.

In contending that the proposed federal code of conduct would require radical changes, those opposing the change discuss their tactics with unusual candor and describe marketing practices that have long been shrouded in secrecy.

Drug makers acknowledged, for example, that they routinely made payments to insurance plans to increase the use of their products, to expand their market share, to be added to lists of recommended drugs or to reward doctors and pharmacists for switching patients from one brand of drug to another.

Insurers, doctors and drug makers said such payments were so embedded in the structure of the health care industry that the Bush administration plan would be profoundly disruptive.

Moreover, doctors said that drug companies were a major source of money for their professional education programs, and that the administration proposal could drastically reduce such subsidies.

"Without financial support from industry, medical societies would most likely be forced to curtail or stop offering these important educational activities," said Dr. Michael D. Maves, executive vice president of the American Medical Association.

Doctors of all types echoed that concern.

The arguments were made in a public comment period. The administration said it was considering those comments and expected to issue final guidelines in a few months.

In its guidance to the industry, the government warned drug makers not to offer financial incentives to doctors, pharmacists or other health care professionals to prescribe or recommend particular drugs. The government said the industry's aggressive marketing practices could improperly drive up costs for Medicare and Medicaid, the federal health programs for 75 million people who are elderly, disabled or poor.

But a coalition of 19 pharmaceutical companies, including Pfizer , Eli Lilly and Schering-Plough , said the Bush administration proposal was "not grounded in an understanding of industry practices." The payments and incentives to which the government objects are standard in the drug industry, they said.

Merck & Company said it routinely gave discounts and payments to health plans to reward "shifts in market share" favoring its products. Merck complained that the administration proposal would "criminalize a wide range of commercial conduct" that the industry regards as normal and entirely proper.

The Pharmaceutical Research and Manufacturers of America, the chief lobby for brand-name drug companies, acknowledged that these payments created a strong incentive to prescribe certain drugs, or to shift patients from one drug to another. But, it said, that did not make the payments "illegal kickbacks."

Solvay Pharmaceuticals of Marietta, Ga., told the government: "We understand that bribes and other hidden remuneration should be prohibited. However, a policy statement that declares well-established commercial practices potentially criminal creates a chilling effect on commerce and ultimately harms all consumers."

The American Association of Health Plans, which represents most of the nation's H.M.O.'s, said the proposed standards "cast doubt on the propriety of many well-established practices undertaken by health plans to develop and administer their drug benefits."

Drug manufacturers said they often encouraged the use of their products by making payments or giving discounts to H.M.O.'s and to the specialized companies that manage drug benefits for millions of Americans. Such companies, known as pharmacy benefit managers, can exert immense influence over what drugs are prescribed and dispensed.

H.M.O.'s and pharmacy benefit managers said they typically received money from the manufacturer of a drug if sales of that drug reached a certain level — say 40 percent of all the prescriptions for cholesterol-lowering agents. The manufacturer may agree to a higher payment if the drug achieves a larger share of the market.

While describing such arrangements, the drug companies, doctors and insurers did not divulge who received how much for promoting a specific drug, nor did they provide details of individual marketing campaigns.

The Bush administration proposal received support from one H.M.O., the Great Lakes Health Plan, which serves more than 90,000 Medicaid recipients in Michigan.

Eric J. Wexler, general counsel of the Great Lakes plan, said pharmacy benefit managers sometimes sent letters to doctors recommending that they shift Medicaid patients from generic drugs to brand-name medicines. In many cases, Mr. Wexler said, the brand-name drugs cost more, but are less effective.